A short-term remedy for unemployment in South Africa

South Africa has been in the news lately, for unpleasant reasons: mob attacks against black migrant workers from neighboring countries.  No doubt the high rate of unemployment among unskilled black South Africans is playing a role in the rising wave of xenophobia.

Unemployment in South Africa is a fundamental problem that requires a multi-pronged approach.  It is driven by unfavorable supply and demand trends in labor markets, downward inflexibility of wages at the very bottom of the labor market, and the increasing unemployability of unskilled young workers who fail to land jobs upon leaving school.  

An employment subsidy targeted at young school leavers can help ameliorate the problem in the short run.  Here is a short op-ed that Jim Levinsohn and I have written which makes the case for it. 

Comments

[Per Kurowski]

I find it truly discomforting not seeing a word about the irresponsible lax attitude that South Africa has shown to someone guilty of economic crimes against humanity as their neighbor in Zimbabwe and which is incompatible with progress of any sort.

South Africa is a great country but the fact is that its people is to busy jockeying for new positions than spending time on their real problems.

I had all my life been a fanatic against the crimes of apartheid. Can you imagine how I felt when visiting that country I suddenly got the feeling that the old regime was in fact more concerned with the poor? It just blew my mind!

And this I say even when I profoundly respect the good intentions and the capacity of Mr. South Africa’s finance minister Mr. Trevor Manuel and who I really find much more enlightened than most other finance ministers in developing countries...and developed countries

On the Levinsohn-Rodrik proposal as such I am not too impressed. I have seen similar plans barely work in developed countries (Sweden) and where the distance between the realities of the formal and the informal sector are overwhelming. In South Africa as a developing country these distances must not be very large and so if there was any punch in the idea it would already be practiced a lot.

There is nothing intrinsically less efficient with a job in the formal sector than with a job in the informal sector and so I do not really understand why to spend extra money on formalization. Get the job first and if it is good it might very well move up to the formal sector, unless it needs to be informality to survive as a viable job.... and which does not by itself make it a less worthy job.

[Ricardo]

Is the only difference between today and a few weeks ago the fact that it is now hitting international news???

How many murders are there on a daily basis? How many rapes? How many (white, black, Indian) people suffer mercilessly at the hands of criminals on a daily basis there?

How many of us South Africans living in Europe, live here because this is NOT NEWS TO US!

I'm sorry for what is happening in SA. Very sorry.

But I am "happy" that the rest of the world is finally taking notice of something that has been a problem for years!

This is not news. This was "day-to-day" life for many of us when we were still in SA - wasn't it?

[Luvuyo]

Ricardo, your statements are dangerous and pregnant, let alone misleading. It is a blatant lie that attacks of this magnitude are/was "day-to-day" life in SA. I am not sure which South Africa you’re talking about. Sure there’s crime in this country, no one’s denying that, but the exaggeration by many of your kind who still expect special privileges or are suffering from superiority complexes is particularly problematic and damaging.

Your views are not entirely inconsistent with Per views about South Africa’s attitude about Zimbabwe and his opinion (feeling, when visited South Africa) that the ‘apartheid government, was in fact more concerned with the poor’.
It is an insult to the people to this country and to the leaders of SADC in particular to suggest that they have a lax attitude towards Zimbabwe. It is time that the western community realize that Afrikas have their own way of doing things – we refuse to bow into the prevalent neo-colonial monster. In short, this country will not indulge into self-serving and imperialist actions by intervening into the sovereignty of Zimbabwe. The leaders of this country continue to engage with the parties involved in the crises in Zim.
I shall not degrade myself by entertaining the argument about Per’s “feeling” that the government that murdered, displaced, marginalized and segregated Afrikan people was “more concerned” for the poor! That “feeling” is undoubtedly emanating from the superiority complex I was earlier alluded to.

The recommendation (for a short-term unemployment solution in this country) by Prof. Rodrik and Prof. Levinsohn is relatively interesting. Although it a is feasible solution, for it to have a significant impact, I think we would need to restructure the entire high school education curriculum to cater more for technical and agricultural skills. Although the flexibility in hiring and firing as well as low (subsidized) labor cost should serve as an incentive for hiring the matriculates, the economy requires highly skilled labor at the moment and I doubt that a citrus or wine farmer in the Western Cape would encourage provide any meaningful (for the future) employment for an aspiring farmer if he does not have basic skills. As things stand now, due to the inferior education, a majority of students who obtain their metric in this country are unemployable.

[Random African]

"Can you imagine how I felt when visiting that country I suddenly got the feeling that the old regime was in fact more concerned with the poor?"

Oh come on !

[Per Kurowski]

Yes I said “Can you imagine how I felt when visiting that country I suddenly got the feeling that the old regime was in fact more concerned with the poor?"

And you think that I said it with any bad intention? Of course not! The best friend is he who sincerely spills out what he feels so that, if there is any truth in it, you can react in time.

While I was in SA some years ago for just a few days I witnessed for instance some public debates that were clearly related to some groups or individuals using their “political correctness” to position themselves more favorably in some companies being privatized and it all seemed quite shameful to me because I have seen exactly the same things happening in my homeland.

I clearly said “I had all my life been a fanatic against the crimes of apartheid” and so does the above “feeling” excuse apartheid in any way or form? Of course not! What it shows is a sense of being let down with what came thereafter! I love your constitution... but are you truly living up to it in spirit?

And what has happened with Zimbabwe cannot just simply be put aside with a “this country will not indulge into self-serving and imperialist actions by intervening into the sovereignty of Zimbabwe” especially when you see that it is causing death and sufferings in your own country, to Zimbabweans and South Africans.

A friend...not an enemy!

[Phil]

Hi Dr Rodrik,

I'm sure you've tracked the politics around the announcement of Dr Hausmann's summary report - specifically that the umbrella labour organisation, COSATU, has more or less dismissed the entire thing out of hand. This should not be ignored in today's political-economy. COSATU is more influential now than it ever has been on both the overall thrust/direction of economic policy in SA, and in many of its specifics.

Our problem in SA is not necessarily diagnosis or even figuring out which prescription might work best (but we are grateful for the excellent work of your group, and of many others in SA and elsewhere). Our problem is the politics of policy choices.

I can't think of many countries where labour unions have quite so much influence on such a range of policies beyond labour market regulation. COSATU has that power in SA, and with it comes a certain degree of responsibility. But they cannot and do not match this responsibility with anywhere near the appropriate degree of intellectual nous or serious policy suggestions.

Hence it saddens me deeply to see a practical, rational, economically sound, and most of all non-ideological suggestion like a wage subsidy for 18 year olds being disregarded quite so quickly and unceremoniously. The official COSATU statement amounted to saying that if we can afford a subsidy then why can't we just pay people more or hire them anyway. For crying in a bucket.

It all smacks of a labour elite completely out of touch with the objective of creating more jobs for SA's rank and file, and concerned more with very narrow power politics and, perhaps, personal gain.

What to do about it? No-one seems quite sure.

[happyjuggler0]

"a brief probationary period during which no-questions-asked dismissal is permitted"

Why brief and probationary? The problem is exactly what you have identified, but instead of coming right out and saying it, you dance around the issue with a 202nd best "solution".

When it is expensive to fire workers, it is de facto expensive to hire workers. The (first) best solution is to permanently end government made costs to firing workers that artificially raise the unemployment rate for untried workers.

You are correct that your subsidy is expensive. Maybe the tradeoff is even worth the huge tax burden that you want to impose on the economy. But it would be much better to point out the horrible policy that is creating the problem that needs alleviating in the first place.